SpaceX is about to sell for $1.75 trillion — and the "Dean of Valuation" says don't buy

Finance News 2 min 3 sources

SpaceX's IPO has triggered one of the year's biggest investor frenzies, oversubscribed twice over despite the company having no profits. The split between its price and its value is a clean lesson in the difference between the two.

Key takeaways

SpaceX is going public at ~$1.75 trillion and is more than twice oversubscribed despite having little in the way of profits — its price is set by demand, not earnings.
The "Dean of Valuation," Aswath Damodaran, won't buy: by what the business can earn, the price has run well past the value.
Price is what people will pay today (a mood); value is what a thing actually earns (slow and dull) — and a hyped IPO is where the two drift furthest apart.

The week’s loudest market story isn’t the oil shock — it’s a rocket company. SpaceX is going public at a roughly $1.75 trillion valuation, $135 a share, raising about $7.5 billion [1]. And it has set off a scramble.

A frenzy, on appetite alone

Demand has run so hot that bankers received more than twice as many orders as there are shares [1]. Retail investors are clamouring in — Musk reportedly carved out a slice specifically for them — and the FOMO has spilled into crypto, where exchanges are offering “tokenised” access to mimic owning a piece [1][3]. All of this, as Reuters put it plainly, “despite SpaceX’s lack of profits” [1].

So the price is being set by how badly people want in. Not by what the company currently earns — which, in profit terms, is little.

The man who values things for a living isn’t buying

Aswath Damodaran, the New York University professor known as the “Dean of Valuation,” looked at the numbers and stepped back: too richly priced [2]. His whole discipline is estimating what a business is worth from what it can plausibly earn — and by that measure, the price has run well past the math [2].

That’s not a prediction that SpaceX is a bad company. It’s a statement that the price and the value have come apart.

Price is a vote; value is a weight

Two different things are happening in that $1.75 trillion. Price is what people will pay right now — and right now is loud: a famous founder, a once-in-a-decade listing, a fear of missing out, a fixed number of shares everyone wants. Demand sets price, and demand is a mood. Value is duller and slower: the cash a business actually throws off, year after year. In the long run a company’s price is dragged back toward what it earns. In the short run, a crowd can hold it almost anywhere.

The IPO is the moment those two are furthest apart — maximum excitement, minimum track record. Which is exactly why it’s the cleanest place to see that they were never the same thing.

The question to carry

You don’t need a valuation model. You need to know which number you’re looking at. When you see a price, ask: is this set by what the thing earns, or by what people will pay for it today? For a savings rate the two are close. For a hyped IPO, a hot neighbourhood, a meme stock, a collectible — they can be a chasm. Knowing which one you’re trusting is most of the decision.

02 · Lesson · why it matters

Price is what people will pay; value is what a thing earns — and excitement is what pulls them apart

A price is a vote on a mood; value is the weight of what something actually produces. The louder the excitement, the further the two drift — and the longer the fall back together.

A company with almost no profits is about to sell for $1.75 trillion, and the most respected valuation expert alive says the number makes no sense. Both things are true at once, and they’re not a contradiction. They’re the gap between price and value, stretched as wide as it gets.

Two different machines

There’s an old line that the market is a voting machine in the short run and a weighing machine in the long run. It’s the most useful sentence in finance.

Price is the voting machine. It tallies what people will pay right now, and right now runs on mood — fear of missing out, a famous name, a fixed pile of shares everyone wants at once. Votes can swing hard and fast, because feelings do.

Value is the weighing machine. It’s the dull, slow measure of what a thing actually produces — the cash a business earns, the rent a building collects, year after year. It barely moves day to day, and it doesn’t care how excited anyone is.

In the short run the voting machine wins and the price goes wherever the crowd’s mood takes it. In the long run the weighing machine wins and the price gets dragged back to what the thing earns. The whole drama of investing — and of bubbles, and of crashes — is the distance between the two, and the reckoning when they meet.

It’s not just stocks

The same split runs under anything that gets priced by demand. A house in a suddenly-fashionable neighbourhood has a price set by who wants in this year and a value set by the rent it could earn — and they can be a chasm. A collectible, a sneaker, a coin, a hyped degree, a viral product: each has a number the crowd will pay today and a number reflecting what it actually does for you, and the two are related only loosely, and only eventually.

The half worth holding

It’s tempting to feel superior here — the crowd is dumb, I’ll just buy value and wait. Resist that, because it hides how little any of us actually knows. Even Damodaran isn’t reading the true value off a tablet; he’s running a model full of guesses about a future nobody can see. Value is realer than price, but it’s still an estimate, and the crowd is occasionally right that something dull is about to matter enormously.

So the lesson isn’t “price is a lie, value is the truth, be smart.” It’s quieter: when you look at any number on any thing, know which machine produced it. Is this what people will pay today, or what it will earn over years? You’re standing inside the voting crowd, not above it — your own excitement is one of the votes — and you cannot fully compute the weight either. Holding both facts at once, that the price is a mood and the value is only an estimate, is what keeps you from being sure at exactly the moment everyone else is too.

03 · Lab · your turn

Voting Machine, Weighing Machine

Judge three hyped assets on whether they're worth more or less than the crowd's price, then see price vs earnings revealed — feeling how mood sets price short-term and earnings set value long-term.